Future Mis-selling Scandals to Protect Yourself Against

HelpWhereIcan

I have started this thread in a genuine attempt to dicuss the matter in a grown up way in order to help MSEers who may be looking at dealing with their financial futures soon.

Everyone welcome to post, but I would add 2 guidelines:

1. I would be grateful if we could avoid the past scandals (endowments :rolleyes:) and stick to what weaknesses there may be at the moment in financial services.

2. I would like to see if we can avoid adviser bashing and, similarly, informed/curious layman bashing.

My question has been prompted by one I asked Ed Investor in another thread and I thought her answer deserved some discussion without hi-jacking the original thread.

HelpWhereIcan wrote: »

Genuinely trying not to be confrontational, but....

Can I just ask whether you believe that any investment product was properly arranged?

Do you belive that mis-selling continues to this day and which products you feel are being mis-sold at the moment.

Just so I can get an idea of your thoughts.

EdInvestor wrote: »

Yes, of course there are practitioners who operate properly, though the structure of the industry can make it quite difficult for them to do so.



Investment bonds, some IHT avoidance products (trusts), some protection products, some SIPPs and churned pensions in general..With profit annuities.Coming up: money back annuities/guaranteed products

There are a vast number of sales of products that are probably not technically misselling cases, just examples of expensive rubbish. eg multi-manager and FOF products (pure laziness!), many bank funds, the aforementioned IBs.

A major problem is that the salesmen (who act as distributors of products, not in fact as financial advisors to their clients) are incentivised by high commissions to sell expensive rubbish, not quality products.

It's the people who go execution/only to the discount brokers who actually end up with the quality service, paradoxically.

As I said, let's try an avoid the adviser/Edinvestor bashing and the whole get advice for free/always DIY issue and stick to pointing out potential mis-selling issues

i.e which products are at most risk of being mis-understood by the people buying them?

Mr_helpful

What a good Idea
Secured loans I am forever getting phone calls from outside the UK trying to get a "Financial Adviser" from the Uk to sell me extra borrowing in the form of a secured loan. Just going along with it I asked for a holiday loan over 1 year but was told that wasnt available but to take it over 5 yrs. A five year secured loan for a holiday?????????
These products are currently unregulated, pay massive commissions and are my offering for miss sale

MortgageMamma

I agree with Mr Helpful, secured loans worry me and get my goat I have many a client come to me for remortgaging to consolidate all the secured loans and there are always massive early repayment charges on them and most of the time the clients are trapped. As a secured loan is in effect a second mortgage and secured on a residential property and should be sold and regulated in the same way a residential mortgage is.

My offering though is buy to lets. Buy to let mortgages (although currently unregulated) are in fact investments which are regulated by the FSA, and a mortgage, also regulated by the fsa. Potential landlords, experienced or otherwise are as vunerable, if not more than someone looking for a residential mortgage - why should they not be afforded the same rights and consumer protection as those who are looking for a main home? I think there may well be a stink about this in future, so I treat my BTL cases exactly the same as my residential. with a suitability letter, thorough documentation and a whole load of justification.

HelpWhereIcan

Thanks guys - meant to give my one immediately but got distracted by better half and kids!

For my part I believe that the ones to be really careful of are:

1. Debt consolidation remortgages - how often do people in financial difficulty have the risks (interest paid over the long term, risk to home, risk of negative equity etc) explained to them in a forceful enough way to ensure that it is their last resort. Some people are better off making arrangements on currently unsecured debts and protecting their home.

2. Interest only - too often presented by SOME advisers as cheap with the risks underplayed - despite well publicised concerns amongst the FSA and lenders.

3. Mortgage Payment Protection (esp single premium) - often expensive and not always sold (especially by lender branch staff and some sub-prime brokers) with sufficient consideration of the liklihood of a claim being paid - many people are better off with PHI.

4. Conversley I actually think that many mortgage brokers are leaving themselves open to accusations of not providing full advice by being reluctant to bring up issues such as Mortgage Payment Protection and Income protection, Critical illness etc. A recession would see a number of people coming back to their advisers saying "you did not reccomend that I take x cover to protect my self cert mortgage." which leads me to my main one...

5. Self Cert Mortgages - There can a temptation to use self cert as a way of getting a larger mortgage than can be afforded. While I think most advisers are aware of this and actively discourage abuse, it would not take much for the blame to be lain at the advisers door.

Beware of any adviser who approaches your 'difficult to place' case as a self cert fom the off - they may be lazy. Similarly, the onus will be on advisers to show what steps they took to ensure the income being declared was genuine

6. Lifetime/Equity Release Mortgages - not neccesarily a problem for the people actually taking them out, but I am thinking more along the lines of making sure that all the children/potential beneficiaries are aware of the process (ie made aware of what is happening and why) so that they are in no doubt of their parents' intentions when they are trying to sort out the estate on their parent's death/incapacity. Could save a lot of future heartache/misunderstandings after you are gone.

Just my thoughts

dunstonh

You can ignore the expensive products bit as all retail products have that from baked beans, washing machines, cars the lot. Thats not mis-selling.

You can also ignore distribution channels as well as that has nothing to do with mis-selling. Home service is typically more expensive than execution only because of the cost of time, advice and liability. Thats not mis-selling.

Ed has listed some very good product types in that list which can save people hundreds of thousands of pounds. However, like any product, from basic home insurance through to complicated estate planning, there is the potential to be mis-sold.

So, on that basis, products which can be mis-sold are:

ISAs, mortgages, current accounts, savings accounts, baked beans, washing machines, cars, computers......

mystic_trev

MortgageMamma wrote: »

My offering though is buy to lets. Buy to let mortgages (although currently unregulated) are in fact investments which are regulated by the FSA, and a mortgage, also regulated by the fsa. Potential landlords, experienced or otherwise are as vunerable, if not more than someone looking for a residential mortgage - why should they not be afforded the same rights and consumer protection as those who are looking for a main home? I think there may well be a stink about this in future, so I treat my BTL cases exactly the same as my residential. with a suitability letter, thorough documentation and a whole load of justification.

I may be a bit dim (nothing new there!) but surely you're not suggesting that an overgeared BTL'er could have right for recourse through the FSA if (say) the value of their portfolio droped, they went into negative equity, had all their houses (and home) repossessed and went bankrupt?

sa2141

Mortgage Payment Annual Reviews – (The Yorkshire Building Society do it on all their mortgages) surely these are an expensive option as you end up potentially underpaying for at least part of a year following a rate increase, then having to pay additional interest on that underpayment for the rest of the term.

The following year the situation could happen again and what’s more to keep the term within the defined time, you will be paying vastly higher monthly premiums than is quoted (by The Yorkshire at least) in the Key facts documentation.

What out for the Yorkshire Building Society who appear to bury all their interesting clause in a 43 page document – I admit it, I am on a downer for the Yorkshire!!

jamesd

BTL: a business, not really the remit of the FSA. A good way to get someone else paying part of the mortgage while you build up equity and keep a link to the property market and its value swings. A good way to lose lots of money if you think you can't lose money because prices always rise rapidly.

Interest only loans: currently the cheapest total cost way to borrow to buy a home, and the one with most flexibility for unexpected situations. Repayment via cash ISA, stocks and shares ISA and pension are all fine with the right risk level. Doing it without knowing that you need a repayment method or are really renting is a potential issue.

Investment bonds: Interesting for avoiding age allowance reduction and for higher rate tax payers, among other things. Not interesting for most basic rate tax payers. Caution with broad brush replies without considering the circumstances is needed.

Trusts, particularly discretionary: very useful to shield assets and protect the vulnerable.

Potential problems:

SIPPs: pitching them to people even when buying the same thing in a pension can be cheaper.

Key facts documents that say the adviser is paid out of management fees without also disclosing how the adviser has adjusted the management fees from the default level, effectively cooperating in concealment of comparative costs.

EdInvestor

HelpWhereIcan wrote: »

Lifetime/Equity Release Mortgages - not neccesarily a problem for the people actually taking them out, but I am thinking more along the lines of making sure that all the children/potential beneficiaries are aware of the process...

Entirely disagree with this.It should be none of the advisor's business what the view of the clients' children may be if the clients don't want this aspect taken into account, as there could easily be a conflict of interest.

I wouldn't see BTL as a matter to be regulated.It's a business, not a financial product.

Should mortgages themselves be regulated ? What's the view after the first few years? It would seem to be the associated products that cause the misselling, rather than the mortgages themselves?:rolleyes: Most if these associated products are insurance-related, of course.

MortgageMamma

I agree with you in part Ed, not all parents want to leave all their hard earned wealth to their children, a close friend of my mother recently sold her property and rented and spent all the cash because she had cancer. Her kids (my school friends) started arguing about who was getting what two days after she revealed her diagnosis the heartless money grabbing vultures. I was sick to the stomach. nobody should ever expect to get an inheritance, its not an automatic right. some people let money rule their world and destroy even the most basic of human compassion. If my kids ever do that to me I'll leave all my cash to all te poor brokers who have had mis selling claims for buy to let mortgages. Believe me, it won't be long before the FSA realise they should be regulated!

HelpWhereIcan

EdInvestor wrote: »

Entirely disagree with this.It should be none of the advisor's business what the view of the clients' children may be if the clients don't want this aspect taken into account, as there could easily be a conflict of interest.

Which TBH is what I think, but the fact remains that there may be 'children' who argue (when they come to inherit less than they were expecting) that their parent was mis-sold and did not understand what was happening because the adviser did not explain the risk properly.